PLR 200021051: Relief for an S corporation election filed late by an attorney

Plain-English summary

Two shareholders intended their corporation to elect S corporation status for its first tax year. They signed Form 2553 and sent it to the corporation's attorney, who filed it late. The corporation and shareholders filed returns consistent with S corporation status. The IRS found reasonable cause for the late election under section 1362(b)(5). It ruled that an election for the first year would be treated as timely if the corporation filed a completed Form 2553 within 60 days of the letter. The IRS did not decide whether the corporation otherwise qualified as a small business corporation.

Ruling snapshot

• Question: Can the late S corporation election be treated as timely for the corporation's first tax year?
• Outcome: Approved, if Form 2553 is filed within 60 days of the ruling letter.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1362.01-03 Washington, DC 20224

Number: 200021051
Person to Contact:
Release Date: 5/26/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:2 - PLR-102581-00
Date:
February 29, 2000

X =

A =

B =

D1 =

Year 1 =

Dear :

This letter responds to a letter dated January 22, 2000, and subsequent correspondence, written on behalf of X by its authorized representative, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on D1 of Year 1. A and B, the shareholders of X, intended for X to be an S corporation beginning in Year 1, its first taxable year. A, as X’s president, represents that A and B signed and forwarded a Form 2553, Election by a Small Business Corporation, to X’s attorney for filing with the Service. A represents also that the attorney did not advise A of the need to forward the Form 2553 to the attorney timely and the records do not show whether X forwarded the Form 2553 to the attorney timely. In any event, X’s attorney filed the Form 2553 untimely for X for Year 1. For Year 1, X filed Form 1120S, U.S. Income Tax Return for an S Corporation, and A and B filed Form 1040, U.S. Individual Income Tax Return, consistent with X being an S corporation.
 -2-
Mr. Quang C. Van
Section 1362(b)(5) of the Code provides that if -- (A) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362(b) for making such election for such taxable year or no such election is made for any taxable year, and (B) the Secretary determines that there was reasonable cause for the failure to timely make such election, the Secretary may treat such an election as timely made for such taxable year.

Based solely on the facts and the representations submitted, we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation for X's first taxable year. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service center effective for its Year 1 taxable year, within 60 days following the date of this letter, then such election will be treated as timely made for X's Year 1 taxable year. A copy of this letter should be attached to the Form 2553.

Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the Code, including whether X was or is a small business corporation under § 1361(b) of the Code.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely yours,

H. GRACE KIM
Assistant to the Chief
Branch 2
Office of the Assistant
Chief Counsel
(Passthroughs and
Special Industries)

Enclosures: 2
Copy of this letter
Copy for § 6110 purposes